Alcadon Group AB (publ)

Welcome to Alkadum Group's presentation over Q2 2024. My name is Sonny Mireborn and I am the CEO of Alkadum Group. With me is also Niklas Svensson, our CFO. I will start with a short review of the company and our market to then describe our quarter presentation in the second quarter and our development in a longer term. Let us start with what we actually work with. We work with what is called connectivity or connection. Roughly speaking, you can divide this into what is required for connection outside and what is required inside the house. When it comes to the outside, it is mainly broadband that you are talking about. It is broadband for the home, it is fiber extraction for 5G-outrunning. Here we have a long tradition and have had market-leading positions on several markets, especially Sweden and Norway, for many years now. I was already in the early 90s when you would fiber the countryside. So there we have a very strong position and we have all products that are required to be able to transport data between buildings, between societies and between cities. When it comes to indoor connectivity, we talk about data centers among other things and perhaps especially all commercial properties. It can be hospitals, offices, factories and industries, everything that is required for the transfer of data indoors. These areas are of course connected. Often you have fiber in the ground that goes to a property. You have fiber, copper and a lot of components for the connection to work indoors, for example an office. In some properties you have a mini data center or a smaller data center in the bottom floor, or in the basement. So there our business areas are connected very well. If you look at the distribution of these, you can say that our largest area is commercial properties in general, what we call cabling. And under this cabling address, which stands for -50% of the turnover, there we have service, we have training of customers, industrial solutions, we have housing, network, tools, a lot of parts. But broadband and data centers are the two parts that have grown the most in the last few years. They stand for about -30% each. When it comes to our industry, we choose to make a little deep dive into two segments. And it is in those two segments that we expect high growth in the coming years. One is FTTH, fiber to the home, broadband. And also excluded 5G. And we say excluded 5G, because 5G will require maybe 2-16 times more fiber than fiber for broadband in the home. And that is so that you get a good coverage. And 5G compared to 4G requires enormous amounts of fiber, because these base stations or antennas have a much shorter range than 4G antennas. But when it comes to broadband for the home, you see on this graph that even relatively mature markets like Sweden and Norway have a long way from all households broadband connection. And even in Sweden, the most mature market here, a good bit of 20% of the government's investments for the government's goal to reach 2025 is still there. There are enormous investments. And we see a lot of interesting projects in Sweden in the last three years, which are moving in the development of earlier broadband networks that have been laid out. And new fiber motorways that are being laid continuously. But the most interesting markets today, not only in Europe, but also globally together with the USA, are the UK, Germany and Belgium. And on these markets we are positioned today through acquisition since a few years back and have succeeded very, very well in the future broadband for the home. Even if the markets are interesting when it comes to very many segments, not least data centers among other things. And if you look at this growth in the last three years, it is mainly Belgium and Great Britain that are sticking out with -180% growth. Also Germany has strong growth, even though they have had some structural problems with making a fast expansion possible, but that will also start. And also a mature market like Norway has grown by 17% during this period. So there is an incredible amount left to do. And when we pull down these old copper networks, the development is going very, very fast. And a whole lot of those copper networks are still out in Europe. When it comes to data center investments, it has probably not been avoided by anyone that data centers are a strong growing segment. And that has to do with the increased data amounts in society. -50% per year increases the amount of data. And when you increase the amount of data, you also need storage capacity for data. And that means a data center. There are many different types of data centers. We are today mainly positioned against what is called co-location data centers and enterprise data centers, which in general are the smaller data centers. But in the acquisition of Wood in Ireland, we also have a little more exposure to these hyper-scale data centers, like Amazon, Facebook, Google's data centers. And it is a positioning we want to have, given that the growth of AI will drive these data center buildings. If you look at what is expected in terms of growth, you talk about investments of around -25% per year. And the markets that are most interesting when it comes to new buildings and data centers in Europe, it is, among other things, Great Britain, it is Holland, Germany, Belgium, it is the Nordic countries. So it is precisely the markets where we are today. And I would say that we are very well positioned in cooperation with global actors, manufacturers that we work with, plus that we have our own assortment of data centers. So I would say that we are very well positioned. A momentary picture of who we are today. We have been working since 1988, and until four years ago we were in Sweden and Norway. Today it is 25% of the turnover. We have gradually positioned ourselves outside of Sweden and Norway, but also outside of the Nordic countries. And that is to change our organic growth profile, and to find companies that are similar to us, who have a strong position in the premium segment, with a focus on network infrastructure, then we can be helped. We can get quite a lot of synergies. We are in the same industry and know each other very well. And since 2016 we have managed to find a lot of companies that we have known very well, which also reduces the risk of the transition. And this has been a very, very nice acquisition. When it comes to our business model, we are primarily a distributor. 80% of our sales are about distribution. It is when we help global, often world-leading manufacturers with their sales on our local markets. And we also have our own brands and our own production, where we customer-fit solutions for our customers. A very good combination, where we get both flexibility and uniqueness in our offers. About 1.6 billion today in turnover, about 120 million in bits and pieces, in rough numbers. We have a lot of suppliers, we have a lot of customers, very low dependent on both individual suppliers and individual customers. We also have a very loyal share of employees. There are a lot of owners in the company, and we like that. We like the pilot school, not only for WD and CFO, but spread out throughout the organization. And we have succeeded in that, I think. Almost 15% of our employees own it. We think that is the best encouragement there is. But let us look at how we did in quarter two. We think it was a very good quarter for us. We had good growth, about 8% is organic growth. A little more than that, if you count Wood, the acquisition in Ireland, which we did in the first quarter. So it is a development that we are very happy about. I will go in a little closer to the segment, but we start to see that the market looks more attractive and starts to come back after this more difficult period we have had the last 12 months. Also, the profit development was very positive. If you exclude the posts that are unrealized, currency exchange, profits and losses and acquisition costs, then we grew the profit by over 50%. If you take them with you, we grew by over 160%, but we think we should look at the underlying profit. It was a nice development. Also, the movement margin has developed very positively. Almost 8% if you exclude these posts that I have just mentioned. It is something we are very happy with. EPS or profit per share, according to Share, I know that many are looking at, also looked positively during the quarter. Also, the cash flow from the running business was developed positively with almost 2.5 kr instead of a little less than 1 kr per share. The cash flow has been 60 million against a little less than 20 million last year. An important key factor for us that we follow internally is EBITDA over Networking Capital. Many of the serial investors, especially in the old companies of Bergman and Bevingsvären, call this R through RK. We follow this and we have a goal of over 50%. Now we have done so much free cash flow during this year, so now we are close to our goal, we are at 45%, which we are very happy with, even if we are not quite done yet. This has of course made our net debt in EBITDA not look particularly high, 2 to 2.3, depending on whether you include or exclude about 16, i.e. leasing. So we are very happy with that, within the framework of our long-term goal of between 2 and 3. Some other things to mention about the segment, we can say that the data center segment continues to grow. More and more global manufacturers want to work with us to get a nice exposure to more countries in Europe. We have brought even more products to this segment and more and more customers are helping us. We are starting to see a good order stock, order is now being built on several markets. So this segment that we are preparing to work on for many years is finally starting to go really, really well. So we are very happy with that. As far as what we call cabling or commercial properties are concerned, it is a stable low growth rate, a part of the construction is being affected, but we have renovation and reconstruction more as a diminishing factor, as well as public properties, among other things, defense and health related properties have gone very, very strong. When it comes to broadband, it is that segment that is most negatively affected by the increased rent and increased financing costs. And that has affected several markets, but now we are starting to see that this segment is getting better and better on several markets. And if you look at the flags below, you can see that it has been a pretty mixed development, where Denmark is actually the country that has developed the worst. And that is because we have been very focused for many years on the broadband segment in Denmark, and it has developed very, very weak. It is a trend that we see cannot continue, it will have to turn, but in the current situation we do not receive signals of a turn in the short term. On the other hand, our industrial processing, public properties, data centers, those businesses are still going very, very well and are growing strongly but from low levels. When it comes to the Norwegian and Swedish markets, we also experience negative growth there, but it is significantly better than it was last and the previous quarter, so that the development is going in the right direction and we think it will look much better in the future. In Norway, among other things, last year we had large telecom customers who made large deliveries, where the margins were also relatively low. We have not had those deliveries during this quarter, but the other businesses with many smaller customers have grown, so it has been a positive effect for us, even though it looks like the country as a whole has decreased. The UK is doing well, plus 6%, but here you should remember that we bought a company called Network Center a little less than two years ago, and that company is now over 40% bigger than when we acquired the company, so growing 6% from those levels is something we see as very positive, and we have also had a good exchange of cash flows and margins in the UK, so it is a very nice development on that acquisition. Benelux, almost 100% growth, there we have acquired companies in both the Netherlands via Network Center, but also in Belgium. Relatively low number of acquisitions in Belgium, where we have managed to scale up the business massively. It is a proper 5G and broadband expansion that is happening in Belgium, where we are taking a very active part and will do in many years to come. The Netherlands is also working really hard, especially data centers and commercial fast network that is growing well there. So an incredibly positive development and a very successful acquisition relatively recently there as well. Germany, we have grown throughout this period. We see that many of our other business colleagues have gone a little worse during the last 12 months. It has been a bit problematic on the German market, but we are a small shareholder with very nice customer orders, so we have still managed to show a very positive growth and see that it will continue. Now we also start to see during the second quarter that the market is starting to look better in Germany, so that is very positive. We are looking at the development since a few years ago. We have a goal of growing 20% per year over a year. Now we have grown with 32% and that is total growth, but we have also managed to clear off an organic growth there as well, which has now increased to about 8% Q2 to Q2. So this is positive. When it comes to profitability, which we measure as EBITDA percent of the turnover, we have a goal of over 10%. There we have a bit left. We have decent investments, including Germany and Benelux, which cost a lot, but we see that it pays off in the long term and it affects the profit margins in the short term. But we are gradually calculating an improvement in the movement margin over time and will reach these 10% and more. When it comes to leverage, or financial leverage, as I said earlier, we have net debt of EBITDA of 2-3. It is not a problem for us to have a relatively high reward if we want. If we lose in the turnover or the market becomes more difficult, then we can free up a lot of cash flows. So that means we can balance our profit development with a good cash flow if we need it. So we see that to lie up against 3, even .5-4 would be completely okay. But we have said that net debt of EBITDA should lie at 2-3, and we are very happy about that. And now we are in the lower part of this interval. If we look at some key figures, which I know many people follow, and look from 2019 to now, the rolling 12, then EPS, the profit per share, has increased by over 100%. So it has been a very positive development. But it is something that is heavily criticized. We like to look at earnings per share, or profit per share, when excluding the depreciation of material rights. So you get rid of this non-cash flow effect, at least one such effect. And then EPS has increased by over 130%. So it is a very positive development. The cash flow we have worked on, really, since 2019. And it is a work that is going fast. Every time you get a new company in the concern, it is a pedagogical development to get them to think more and more about the cash flow. We have succeeded well, starting in Sweden and Norway, and now in other markets. In 2019 we had 35 million cash flows from running businesses. Now it is the rolling 12, 174 million. So it is a real improvement. Per share we have gone from 2.1 to almost 8 crowns per share. So it is positive. And we follow many key figures in development and work on it. But I think sometimes you focus too much on the depreciation of capital and EPS. You have to look at several key figures combined to get a good picture of how a business is going. With that said, I would like to say thank you. And I hope you got a good picture of both our business and our Q2 result. Let's see what questions we have received here. First question, you mentioned that you had a very strong position with global suppliers in data centers in most parts of Europe. Is this an exclusive distribution agreement or how does it work and how do you have a better position than other actors? Yes, then you can say that we have several global suppliers, including Panduit, Legrand, which we work with. In some cases, in some markets, they are completely exclusive. In some markets, for example in Great Britain, the market is simply too big. Then we are two or three actors who share this. And then you have some kind of distribution of the market between us. Sometimes we compete directly with each other. But then you usually work not only with one supplier product, but it is a kit with products from several suppliers and our own production. And in that way, we get a better position than many other actors, which are purely distributed distributors or manufacturers. A purely distributed distributor can very rarely or not always bring out customer-specific solutions. And a manufacturer often has a limit to its own range. So that gives us a very good position. Now we will see here a question in English. I will just read it for myself and summarize it. It is a question about Wood. How have they been? That they look to trade a little lower in terms of turnover. If you wonder how they will move forward. I will say this. Wood depends from month to month, quarter to quarter, what turnover you have. The first quarter here in the Altarón-Costa was somewhat lower, with a bit over 20 million in turnover. We are especially worried about it in the follow-up plan. You have had several such quarters the last year also behind you. So it is nothing we are particularly worried about. We believe that you will be able to lie ahead on the levels we have gone out with in our press release. You also managed to lie over 20% in the movement margin and had a very positive cash flow. So there I would say that they have performed according to the plan. And it is a company that will be relatively stable in the future with low growth. I hope we can get real synergies on that. But as is the company as it is, you should not expect that it will grow by -20% per year. Which may meet expectations in the UK. The Irish market will not grow so fast. You will see the stock market margins. Strong stock market margins. How should you look at the stock market margins in the future? You can say this. Wood has high stock market margins, so they are closing out positively. The other companies have also increased stock market margins. We have been a test when it was inflation in the market. It takes a little time to continue to increase prices. One to three months. And when there is inflation that occurs in a very long time, it takes time to come down. And now we are down and the margins have simply gone up on our more mature markets. And on a couple of markets above that, we have also managed to gradually increase the margins. So it was a very tight stock market margin this quarter. We think it will be good in the future, but we do not give signals on the head. It is not so that the stock market margins are necessarily symptomatized by how the stock market margins look. If we grow outside of the Nordic countries, we basically have lower stock market margins. But growth gives us higher stock market margins. Both from the local markets and the concern. So it is not possible to just look at the stock market margins. Then we will see. Niklas, this is a question for you. Can you help to prepare for the development of the capital movement in the quarter? And make an update on how you plan for the second half of

the year. Absolutely. Thank you very much. It is true. We have had a good freeing of capital movement. And we have had several quarters in a row now. We have talked about that we actively work to free the capital movement. And that is what we have seen a big effect on the cash flow. We still have work to do there and see that we can free the capital movement and work more efficiently. We will not see the big effects we have seen in the last three quarters. But the capital movement will be closer to where we are today. A large part of the cash flow was increased in revenue. We were so close to the levels and the costs. But we continue to work with our movement capital actively. And as you mentioned before, also to train within the concern. Which we see gives an effect. And the law as the long-term freeing of movement capital will continue to be effective.

Thank you. Then we get a question about the delivery levels in the framework of the Deutsche Glasfaser in Germany. We can say that they continue to deliver in a positive way. They grow, but there are also many other smaller customers than Deutsche Glasfaser that grow relatively well in Germany. So we are not entirely dependent on one customer. And above all, there are many entrepreneurs to Deutsche Glasfaser that we deliver to. They also have other customers. Sometimes it is not quite clear to us where the deliveries are going. But we see that we grow and that people in Germany want to work with us. The German market has had some structural problems. And many actors have not performed particularly well there. With that, we have performed very well. And I think that what we see, the market will go even better in the future. We see positive signals. Then we will see. Could you go through a little more expansion in fiber in Germany? How do you see the value chain and positioning today compared to two or three years ago? One should be able to say that there is no greater change with how the value chain looks or our positioning. We work in the same way. We connect to more and more suppliers and strengthen our range. Above all, we build our organization in Germany. It takes a little time, but I think I see a positive development all the time. Our positioning, one can say that we are a small actor. But you are in the agreement with Deutsche Glasfaser, so we are seen. I would say that we have succeeded so well in Belgium. But it is because we have been discovered in Germany and seen how we, as a relatively small actor, manage to run very large projects with our customers in a successful way. So this has had a spilling effect on several markets. Could you dive a little deeper into broadband views in the near future from larger fiber markets? Yes, absolutely. As I mentioned, there are more positive signals. Both larger German customers give us more positive signals without going into detail on how they look. So it looks better, basically. The same thing in the UK, where it has been quite still. Now there has not been any greater danger in the region for us, because we have grown so much in data centers and other segments in Great Britain. But within the fiber at home, it has been almost completely still. And it is so that the higher interest rates have made that there has been a consolidation in that market. Many smaller actors have been knocked out or been bought up.

And

there we have seen a positive development for us. Our customers, our large customers and Altnet have acquired many companies. And that makes us feel pretty sure that when the market starts, we will get a very positive effect. And that's what we're starting to see signs of now, that it's starting to get going. So that looks positive. When it comes to Belgium, it goes for all cylinders. It's 5G, it's broadband, it's several actors. We are invited to the trend market, so that the competition situation is not particularly positive. And it has been very positive for us. And we take market shares on a growing market. Benelux now turns big numbers. What do you see for marginal development now that you reach that size? Yes, it does not go into the margins per market. But one can say that we acquired a company with a good margin and have now grown and scaled up the costs. And we have started to reach a situation where we are now starting to get a proper scale advantage on the investments we have made. The margin is developing very positively and we earn money in Benelux. So much I can say. I have no doubts that we will reach the concern goal in the short term on that market.

Could

you go a little deeper into how the margins look in the different geographies? No, we do not do that in our report. What we have said earlier is that we have a positive development and it is in some way dependent on the volumes. On some single market we feel that we can increase the margin from the current levels and get a rise on that. But in the rest it is a volume issue. With growth we get a rise effect. And we will see here what we have more questions. Can you give a little more color to the development in Sweden? You write in the report that the market is clearly improving towards the end. Is that also the case with broadband? Yes, it is true for all segments. But above all where we see the biggest change during the quarter, it is actually commercial properties and data centers. But we see a quite broad improvement. When it comes to broadband, it is very project dependent. But of the signals we get, it is relatively positive. We know that there is a lot left to do in Sweden on the broadband market. We know that there are a lot of projects that have been put into practice during the previous 12 months. So it will look more positive. Next question, you mentioned a successive improvement of the movement margin against the goal. Is this assessment about an improvement in the near future or is it longer in the future? No, but we have said earlier that our vision, I have a little dialogue about this vision in the report. But you can say that our goal of being over 10%, we see that it is still a relevant goal both over a conjecture cycle and by 2025. Then you should remember when we put this vision, it is a vision. It was in time when we had planned to make more large acquisitions with relatively high movement margins. But our organic assessment remains. We also have the space to make smaller acquisitions. So that is our view on that. If you had any more questions, how much does the coming interest rates play a role in the question? Yes, we can say that the interest rates play a role. It is primarily for the broadband market and that is what makes us start to see an improvement in that market. But this consolidation that has happened in our customer base is positive. If there were to be another period of higher interest rates and financing costs, the market in the customer base would be healthier. So this has been a positive exposure on that market in the long term. We also have some business colleagues who have managed less well and have started to focus on other segments. It is positive to leave more space for us. We have been continually focused on all three of our segments. We have benefited a lot from not throwing ourselves into the segment that grows the fastest for the moment. I think that was all the questions. Thank you so much for today and for taking the time to listen to us. If you have any questions, it is always good to get back to me or Niklas on the side. Otherwise, we thank you for this short half hour. Thank you very much. Bye. Thank you very much.